The Berkshire Hathaway Currency

Warren Buffett may think so, at least based on his comments in a recent regulatory filing about his $547.6 million stock-and-cash deal to acquire the part of the Wesco Financial Corporation not already owned by Berkshire. The Oracle of Omaha, in a letter, called the transaction “disadvantageous to Berkshire,” assuming a large number of Wesco shareholders opt for stock.

“I believe the prospects for Berkshire shares over the next 10 years to be considerably better than the prospects for Wesco shares considering the economic prospects of the businesses each of the companies own,” Mr. Buffett wrote in a Jan. 21 letter to Carolyn Carlburg, who sits on a special committee for Wesco Financial.

Mr. Buffett has long been loath to use Berkshire Hathaway as currency when he thinks the shares are undervalued. In his annual letter last year, he lamented the use of stock in the purchase of the Burlington Northern Santa Fe Railway for $44 billion, saying he enjoyed issuing the shares as much as “prepping for a colonoscopy.”

“The reason for our distaste is simple. If we wouldn’t dream of selling Berkshire in its entirety at the current market price, why in the world should we ‘sell’ a significant part of the company at that same inadequate price by issuing our stock in a merger?” Mr. Buffett wrote in the letter. “If an acquirer’s stock is overvalued, it’s a different story: using it as a currency works to the acquirer’s advantage.”

He similarly raised a stink last year when Kraft made a play for Cadbury with cash and stock. At the time, Mr. Buffett said he considered Kraft’s shares to be undervalued — and using stock in the acquisition would harm investors. Kraft acquiesced, somewhat, upping the amount of cash in the deal.

Indeed, Mr. Buffett’s take on Berkshire as deal currency can be bullish or bearish indicator. The last major all-stock purchase Mr. Buffett made was in 1998, when Berkshire bought General Re. Over the next couple of years, Berkshire’s stock sank.

In 2006, a unit of Berkshire Hathaway used $5.1 billion of cash to acquire PacifiCorp. Two years later, Berkshire’s Class A stock peaked at around at around $147,000 a share.

It shares have yet to return to those former highs and are currently trading around $127,630.